Valuation Wise: French state equity stakes still look pointless
The French State will not let essential Atos assets end up in unknown hands. The Atos strategic assets on which French defence relies represent c. €900m in revenues and presumably less than €1bn in value. For once the French government can call this bid strategic whilst earlier efforts to block the acquisition of Danone or Carrefour for the same reasons looked plain ridiculous.
There is an interesting twist in the government stance: it will want French industrial groups to do the job of owning the economic interests of Atos strategic assets while, in an ideal scenario, the French State would concentrate on a golden share. This is progress: the French State may not need to exercise operational control.
Which begs again and again the question of whether there is any point in the current portfolio of the French state in terms of listed assets. Using the AlphaValue coverage for a quick and dirty review, we compute a current valuation of c. €55bn for the stakes directly held, c. €10bn via Caisse des Dépôts and c. €10bn via BPIFrance Participations. Note that EDF, which is now 100% State owned, used to be worth €50bn through its then 15% float.
We looked at the 32 stocks held directly or indirectly by the French state as if it were a portfolio. The 3 biggest stakes at pixel time are Airbus (18% of total), Engie (15%) and Safran (13.4%). Add Thales (11.6%) to Airbus and Safran and c. 43% of the total has a genuine ‘strategic’ logic even though here again a golden share would suffice. Engie could make a claim to being ‘strategic’ in a former world where energy markets were in the hands of national champions. Competition in fast-moving energy markets is a must to precipitate the shift to green meaning that Engie would be better left alone. It probably has enough on its hands anyway as it sorts out its Belgian nuclear equation. Without the weight of EDF, the current French State portfolio is a bit cheaper in terms of valuation as shown by the last line of the following table vs. the grey one which is a proxy for market averages. Being cheaper does not matter though.
French state equity assets valuation fundamentals
On the rating side, the portfolio would be BBB on average.
Lastly, the public ownership of these corporates has no positive impact on their ESG credentials. As would be expected the State influence acts a negative on the governance front.
In short, as Europe has to rethink itself in terms of defence, the bulk of the French state portfolio by value presumably makes sense. Still it is not clear whether direct ownership is needed to drive an industrial policy in this context. A joint European approach to defence spending is made needlessly complex by the French State ownership of its champions.
There is an interesting twist in the government stance: it will want French industrial groups to do the job of owning the economic interests of Atos strategic assets while, in an ideal scenario, the French State would concentrate on a golden share. This is progress: the French State may not need to exercise operational control.
Which begs again and again the question of whether there is any point in the current portfolio of the French state in terms of listed assets. Using the AlphaValue coverage for a quick and dirty review, we compute a current valuation of c. €55bn for the stakes directly held, c. €10bn via Caisse des Dépôts and c. €10bn via BPIFrance Participations. Note that EDF, which is now 100% State owned, used to be worth €50bn through its then 15% float.
We looked at the 32 stocks held directly or indirectly by the French state as if it were a portfolio. The 3 biggest stakes at pixel time are Airbus (18% of total), Engie (15%) and Safran (13.4%). Add Thales (11.6%) to Airbus and Safran and c. 43% of the total has a genuine ‘strategic’ logic even though here again a golden share would suffice. Engie could make a claim to being ‘strategic’ in a former world where energy markets were in the hands of national champions. Competition in fast-moving energy markets is a must to precipitate the shift to green meaning that Engie would be better left alone. It probably has enough on its hands anyway as it sorts out its Belgian nuclear equation. Without the weight of EDF, the current French State portfolio is a bit cheaper in terms of valuation as shown by the last line of the following table vs. the grey one which is a proxy for market averages. Being cheaper does not matter though.
French state equity assets valuation fundamentals
On the rating side, the portfolio would be BBB on average.
Lastly, the public ownership of these corporates has no positive impact on their ESG credentials. As would be expected the State influence acts a negative on the governance front.
In short, as Europe has to rethink itself in terms of defence, the bulk of the French state portfolio by value presumably makes sense. Still it is not clear whether direct ownership is needed to drive an industrial policy in this context. A joint European approach to defence spending is made needlessly complex by the French State ownership of its champions.
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